Brrrr gets the most out of your capital

[Kiren Pajotte]

I'm reading David Greene's BRRRR. On page 27-28 he's explaining how to increase your ROI by borrowing a portion of your basis. He continues to break down the formula. This is where I got lost. Does anyone understand this portion?

[Will Fraser]

Hi @Kiren Pajotte, welcome to the BiggerPockets forums!  I think David's point here is clearer when you "zoom out" a bit and lose some of the jargon.  Let me illustrate with a recent deal:

• - Purchase price = $120,000
• - Renovation budget = $50,000
• - After repair value = $225,000

- Refinance amount = $168,750.  

So . . . the way the particular loan product from the bank is structured puts me bringing 15% of the purchase price and the bank will fund the rest of the purchase and all of the renovations (up to 75% of the after repair value).

I BRRRR this myself

Down payment = 15% of $120,000 = $18,000

After refinance, I cash out I pull out all but about $2,000 dollars of this and rock and roll with the $16,000 remaining.

A BRRRR together kind of deal

There are a few different ways to BRRRR together, but let's look at these two:

Partner A brought the downpayment of $18,000.

After refinance, Partner A pulls all but about $2,000 dollars of this and rock and roll again with the $16,000 remaining.  

Partner A and I continue partnering on this deal operating it as a rental.  We both have funds to be able to recycle into more investments, giving us the ability to grow faster.  Good for US in many cases.

Scenario #2:

I BRRRR the deal and Partner B "buys in" at one of the closings for $10,000. This creates a situation in which open cash-out refinance I have $26,000 for the next project and the partner bought into a $225,000 property for $10,000. The growth can continue quite rapidly using this model as the "cash pile" keeps getting bigger. Good for US in cases where one partner is cash-flush and the other is time-liquid or in which one partner wants to be more passive than not.

Alright . . . It looks like we zoomed way out!

Be well,